For the first dividend stock analysis of the year (besides my 29 Dividend Stocks for 2012 eBook), I decided to take a look at a beaten up stock that could definitely become a rising star in the upcoming years. For a fact, GNV dropped by 14% in 2011. Was it justified or was Genivar simply a victim of a bad Canadian stock market? Let’s dig further to find out!
Genivar (GNV) Description
Genivar is a leading Canadian engineering services firm offering its expertise in multiple types of buildings for private and public sector clients. Strong from its expertise and the fact that 99% of North American infrastructures need a lifting, GNV grew rapidly throughout the years. GNV used to be a tax sheltered income trust and benefitted from a Canadian tax loophole until January 2011.
GNV Stock Graph
GNV Metrics
Ticker GNV CN Equity
Name Genivar Inc
Dividend Metrics
Current Dividend Yield 5.43
5 year Dividend Growth 20.03
1 year Dividend Growth -26.83
Company Metrics
Sales Growth (1 year) 21.45
Sales Growth (5 year) 33.78
Earnings growth 32.54
P/E ratio 16.25
Payout ratio 120.34
Return on Equity 11.24
GNV Upcoming Dangers and Opportunities
The GNV management team has proven to be resilient and has a clear vision. They grew rapidly through acquisitions over the years. An interesting fact about GNV is that they haven’t used much debt to grow. In fact, their debt to equity ratio is at 34.80%, which shows that GNV prefers to use equity instead of debt to continue its expansion. Therefore, if we were to see rising interest rates, GNV will not be overly concerned about it.
If you look at the dividend metrics, you will see a dividend cut for 2011 as well as a ridiculous payout ratio of 120%. These 2 metrics are much better than it looks. In fact, GNV doesn’t show a great picture of the company since they switched fiscal structures (from income trust distributing most of their income BEFORE tax to a standard company paying dividends AFTER tax).
According to their rapid growth rate and solid balance sheet, financial analysts agree to say that Genivar is able to sustain its dividend over time. Therefore, it could be an interesting play for the future.
Genivar has bought several engineering firms on the market (Decibel Consultants, OptiVert inc., JMH Environmental Solutions Ltd., Dakins Engineering Group Ltd, Consultores REgionales Asociados S.A.S and Delcom Engineering Ltd. just to name the 2011 acquisitions). Such rapid growth will surely look fine on the financial statements in terms of sales growth but will also require an impeccable integration process.
Another factor I like about GNV is the current infrastructure problem in Canada. The Government is stuck with a lot of highways, bridges and buildings that need maintenance. Genivar will definitely benefit from its leader position to get its shares of contracts and assure its profitability over a long period of time.
The only thing that could go wrong with GNV is the aura of corruption that is currently surrounding all construction companies in Quebec. If this aura was to reach engineering firms, the government backed contracts could be an issue.
Final Thoughts on GNV
I like the company, like the growth but I’m not too keen on the poor dividend metrics. I know they have switched from an income trust to a standard company. On one hand, I have a feeling that it’s a bit too early to make a move and on the other I feel that waiting would just prove that it was a great stock to hold… but I missed it!
In the end, I do not intend to purchase GNV at the moment… because I don’t have any liquidity. If not, I would give it some serious thought… what do you think?
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